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  1. #1
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    Reasonable Expectations
    I am currently in talks with an online electronics goods company that (think TigerDirect, Newegg, etc) to start up their affiliate marketing program. I have very limited experience with affiliate marketing (I come from a more traditional marketing background) and am wondering what to expect. The company currently has no affiliate marketing program in place and is only marketing themselves through cost per click advertising on various price comparison websites. They are a well established company (in business for more than nine years, all online) and have an average sale of $300 (approx) generated only from repeat customers and the cpc advertising.

    My job's compensation is going to be directly linked to the sales of the affiliates and I am trying to determine what a reasonable expection of those sales might be. I was hoping that someone in this community could help me try to determine those figures (obviously ballpark) based on their knowledge of the industry.

    I understand that there is a build period because we are starting at zero, but what type of time frame am I looking at to get to certain plateaus ($250k, $500k, etc)?

    I don't know if anyone would be able to help based on this limited amount of information, but as I said, I'm really only looking for some rough estimates.

    Thank you.

  2. #2
    Canadienne extraordinaire Susan's Avatar
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    Red face
    Hi there,

    Thought I'd jump in since this is a common question that we receive from a merchant (who has had limited exposure to affiliate marketing).

    A couple of questions for you. Do you:

    - know how well defined their marketing strategy is, what kind of visitors are currently coming to the site, conversion rate (from click to sale)
    - what is the market saturation for that particular product or service. How competitive is the marketplace?
    - when it comes to competitors' affiliate programs, is the offer similar or more competitive? (if it isn't a better offer, good luck getting traction!)
    - have a broad range of creative (that work) for affiliates to pick and choose based on their needs
    - have the capability to deep link, provide targetted landing pages, have datafeeds or product catalogues etc. meaning, do you have the roster of affiliate tools needed to support affiliates end to end
    - plan to use a network or do it all in house? If you start in-house, you're going to need the resources to actively recruit (forums, directories, advertising) affiliates to let them know you're out there, and that takes time and money

    And most importantly, do you have support from upper management to implement the necessary changes needed to successfully grow an affiliate program (all the above and more). If you don't, good luck, you'll need it!

    Even IF you have all of this information (plus a whole lot of market intelligence) determining results is still a guessing game.

    Typically, we let merchants know that we'd have a better idea after a few months, when we've had a chance to optimize the program, test creative, receive feedback from affiliates (who have joined) and made the necessary changes to the site to improve conversions.

    Based on my experience, the electronics goods industry is a tough market to be in when it comes to affiliate marketing. Highly competitive and lots of 800lb Gorillas out there.

    Wish I could have given you a more definitive answer!

    Cheers,
    Susan Arts
    Senior Vice President, Marketing
    Moxy Media

  3. #3
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    Thank you Susan for your response. I certainly appreciate the time that you put into it. It has helped give me a clearer picture of the things I should be looking for. To answer some of the questions you asked:

    - know how well defined their marketing strategy is, what kind of visitors are currently coming to the site, conversion rate (from click to sale)

    I know that this information if available, but I do not have it as of yet.

    - what is the market saturation for that particular product or service. How competitive is the marketplace?

    I can imagine that market saturation is pretty high for this category, though I do not have any hard numbers. As you said, there are a lot of "800 lbs" gorillas in this category. However, this particular retailer has been competing in this category successfully for the past nine years. They may not be one of the 800 lbs gorillas, but they certainly are a 600-pounder.

    - when it comes to competitors' affiliate programs, is the offer similar or more competitive? (if it isn't a better offer, good luck getting traction!)

    This is something that I have already discussed with upper management and explained to them that we need to hit the streets with a dynamite program. They have agreed.

    - have a broad range of creative (that work) for affiliates to pick and choose based on their needs

    There are a few banners now and a templated email, but this is something that I would be tasked with creating. I will either do it myself in house or farm it out to an agency. Just out of curiosity, is brand building important in affilate marketing? By this I mean, keeping a constant identity througout our materials or is it more just providing the affiliates with raw data.

    - have the capability to deep link, provide targetted landing pages, have datafeeds or product catalogues etc. meaning, do you have the roster of affiliate tools needed to support affiliates end to end

    No data feed as of yet, but this is something that I am pushing for and is in the works.

    - plan to use a network or do it all in house? If you start in-house, you're going to need the resources to actively recruit (forums, directories, advertising) affiliates to let them know you're out there, and that takes time and money

    The plan is to use a network

    And most importantly, do you have support from upper management to implement the necessary changes needed to successfully grow an affiliate program (all the above and more). If you don't, good luck, you'll need it!

    Management is 100% behind this program, so luckily, I have no worries there!

    Again, thank you so much for your help and this invaluable information.

  4. #4
    2005 Linkshare Golden Link Award Winner  ecomcity's Avatar
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    Don't launch another computer products supplier on a major network. The BHO's and existing SERP spammers, couponers and e-mail blasters will kill your conversion ratios. Only one company TigerDirect had the moxie and management permission to graw a program for a dead pool candidate to over 2 million is sales inside of 6 months. The history & how to story is right here at ABW.... via search.

    Think the best practices of the computer VAR program and you'll do OK.
    Webmaster's... Mike and Charlie

    "What have you done today to put real value into a referral click...from a shoppers viewpoint!"

  5. #5
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    Quote Originally Posted by ecomcity
    Don't launch another computer products supplier on a major network. The BHO's and existing SERP spammers, couponers and e-mail blasters will kill your conversion ratios. Only one company TigerDirect had the moxie and management permission to graw a program for a dead pool candidate to over 2 million is sales inside of 6 months. The history & how to story is right here at ABW.... via search.

    Think the best practices of the computer VAR program and you'll do OK.

    Thanks for the post, ecomcity. From what I've been reading in other forums, you're quite a knowledgable player in this industry.

    I do have some questions though, regarding what you said (and I'm sure these are of the "sheesh, noob" category):

    1. Your advice of "Don't launch another computer products supplier on a major network" is based on the fact that there are already too many or that the ones that have tried (other than TigerDirect) have failed? Does your suggestion imply doing something in-house as opposed to using a big network or not doing anything at all?

    2. Coversion ratios: you mentioned that the various, nefarious characters will kill my conversion ratios. I assume that keeping a solid conversion ratio is important in attracting affiliates to the program, correct? Are there any other aspects of a healthy conversion ratio (other than sales) that I am missing?

    3. The company that is courting me is a VAR and, from what I have read (specifically in the "NewEgg starting an affiliate program" thread), you think that electronic VAR's should not get into affiliate marketing. Can you expound on this?

    Again, thank you for yours, and everyone else's help. I'm truly learning a lot.

  6. #6
    Analytics Dude Kevin's Avatar
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    Not going to Officially answer for Ecom, but:

    1) If you can run a clean in house program, it's better than the other two options, for both the merchant and the affiliates.

    2.) Conversion ratio is gold to affiliates. They work hard for their traffic, and want it to pay off when they send it to you.

    3.) This is the point where opinions will vary most, but: A VAR is already layering another commission level, in a sense, to the program. It's accounted for in one of two ways: Increased sales price, or decreased commissions for the affiliate. Affiliates who wouldn't join a two-tiered program are the same ones who might shy away from a VAR program. They would prefer to see a lower sales price or a higher commission DIRECTLY from the manufacturer (or as close to the manufacturer as possible). Two tiered programs disperse commissions thinly. If you can give 5% commission to a second tier, why not scrap that tier and add the 5% to the primary affiliates base level? VARs can be seen the same way. There also can be customer service issues, etc, and we are further removing the customer from the source (the manufacturer,etc, ie the ones with the most at stake.)
    Kevin Webster
    twitter: levelanalytics

    Kayak Fishing
    Web Analytics and Affiliate Marketing

  7. #7
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    Thanks Noth, I am really starting to get a grasp on this now.

    Based on your answer to the first issue of running an in-house program as opposed to being on a network, do you think that there would be trepidation in the eyes of the affiliate to sign on to a new program that is run in-house as opposed to being on a network? Meaning, does the network add a layer of legitimacy to the program?

    Also, in regards to the VAR comment: if we can structure the program to pay the affiliates at a higher level of commissions than the other competitors in the category, would it still matter to the affiliates, in your opinion, that there is an extra layer?

    Thank you.

  8. #8
    Analytics Dude Kevin's Avatar
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    Based on your answer to the first issue of running an in-house program as opposed to being on a network, do you think that there would be trepidation in the eyes of the affiliate to sign on to a new program that is run in-house as opposed to being on a network? Meaning, does the network add a layer of legitimacy to the program?
    Not necessarily. There are plenty of affiliates that love in house programs. Lower costs (aside from having to do the accounting and mailing) sometimes drive up commission rates. Also, non-network programs sometimes get less promotion and notice, thereby decreasing affiliate competition. Will will need to provide all the tools they need though.

    Also, in regards to the VAR comment: if we can structure the program to pay the affiliates at a higher level of commissions than the other competitors in the category, would it still matter to the affiliates, in your opinion, that there is an extra layer?
    Money talks... Commission + Conversion = Good, happy affiliates.
    Kevin Webster
    twitter: levelanalytics

    Kayak Fishing
    Web Analytics and Affiliate Marketing

  9. #9
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    Quote Originally Posted by Noth
    Money talks... Commission + Conversion = Good, happy affiliates.
    Thanks again. Is there a scale of conversion rates that I could use as a barometer? I have no idea what would constitute a good conversion rate as opposed to a bad one.

    I agree about lowering the costs by bringing the affiliate program in house. The fee charged by the networks could certainly be used to bolster the commission to the affiliates. I'm just nervous, having never done this before, about taking up the responsibility of doing this all in house.

  10. #10
    Analytics Dude Kevin's Avatar
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    Make sure you can efficiently support the "payroll" for a project of this size. Amongst the other work to get a good ROI for your time investment.

    I haven't worked with consumer electronics previously, even as an affiliate, so I haven't read up on conversions for those things.
    Kevin Webster
    twitter: levelanalytics

    Kayak Fishing
    Web Analytics and Affiliate Marketing

  11. #11
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    Thanks Noth, I certainly appreciate you sharing your knowledge. Do you have any thoughts on where I might be able to find out about the conversion rates in the electronic category? I've tried searching the forums, but have had little luck.

  12. #12
    Analytics Dude Kevin's Avatar
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    I generally look at EPC stats on SAS or CJ. I'm sure googling it will eventually lead you to a good estimate...

    EDIT: EPC stats are not a great barometer, but they work for generalization... There are additional factors in EPC that don't figure into the true conversion rate...
    Kevin Webster
    twitter: levelanalytics

    Kayak Fishing
    Web Analytics and Affiliate Marketing

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